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Lev, Tax Advisor

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Experience: Taxes, Immigration, Labor Relations

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I purchased a house in Pennsylvania for my mother several years

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I purchased a house in Pennsylvania for my mother several years ago for which she pays me what is essentially "rent" (slightly less than the monthly mortgage of the house) and I make the house payments from a bank near my home in Mississippi. The house prevented her from living in an apartment or senior home after my parents sold their house. I've never considered the home a rental property for tax purposes given that I didn't purchase it for the intent of obtaining income, just to provide her a decent place to live outside of an apartment or senior home. She called to tell me that she's eligible for some sort of "rental rebate" in the amount of $600 and mailed me a document to sign/notarize. Now I'm questioning whether I've been in error not treating the money she sends me each month as "rental income" for tax purposes. Have I set myself up for a problem with the IRS?

While your original intent was not to obtain an income - the fact of receiving an income is a taxable event.

If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.

Where to report. Report your not-for-profit rental income on Form 1040 line 21. For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A if you itemize your deductions.

Claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535 - www.irs.gov/pub/irs-pdf/p535.pdf , as miscellaneous itemized deductions on Schedule A (Form 1040), line 23. You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income.

Thank you for your assistance, I appreciate it. I will consult with a local tax preparer (I've simply utilized TurboTax for my tax preparations for years) and determine the best course of action. Have a pleasant evening.

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